Massachusetts business trust
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| Business law |
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| Sole proprietorship |
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| USA: |
| Business trust · LLC · LLLP Series LLC Delaware corporation Nevada corporation |
| Commonwealth/Ireland/UK: |
| Limited company (By shares · By guarantee) (Public · Proprietary) |
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| AB · AG · ANS · A/S · A/S |
| K.K. · N.V. · OY · S.A. · GmbH |
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| Corporate governance |
| Limited liability · Ultra vires |
| Business judgment rule |
| De facto corporation and corporation by estoppel |
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| Contract · Civil procedure |
A Massachusetts business trust or MBT is a legal trust set up for the purposes of business in the state of Massachusetts. They may also be referred to as an unincorporated business organization or UBO.
Many businesses are formed using MBT's to mitigate taxation, also significant numbers of mutual funds are structured as MBTs.
During the last century and through the mid years of this century the tax laws and State regulations strongly favored corporate structures, tightening of these laws in the past 10-15 years have resulted in the resurgence of the use of the UBO. For example, in 1985 the Scudder Capital Growth Fund, Inc. and Kemper Money Market Fund, Inc. changed their forms of organization from corporate to a Business Trust Organization.
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[edit] History
The Business Trust made its debut in Massachusetts in 1827. As a result, a U.S. Business Trust today is often called a "Massachusetts Trust" in legal circles. The U.S. Supreme Court defined the Massachusetts Trust as a form of business organization, common in Massachusetts consisting essentially of an arrangement whereby property is conveyed to trustees: in accordance with terms of the Trust. The business is to be held and managed for the benefit of persons who hold transferable certificates issued by the trustees showing the shares into which the beneficial interest in the property is divided.
This method of transacting business in commercial enterprises originated in Massachusetts as a result of negative laws prohibiting the development of real estate without a special act of the legislature or in other words, without "permission" of the State . So, the Business Trust was created under Common-law right to contract to obtain legislatively constructed business organizations advantages but without having to gain "permission" to enter into a business activity and suffer under the burdens and restrictions that are placed on "statutorily constructed organizations".
[edit] Taxation
The terms "business trust" is not used in the Internal Revenue Code. The regulations require that trusts operating a trade or business be treated as a corporation, partnership, or sole proprietorship, if the grantor, beneficiary or fiduciary materially participates in the operations or daily management of the business. If the grantor maintains control of the trust, then grantor trust rules will apply. Otherwise, the trust would be treated as a simple or complex trust, depending on the trust instrument. (Source: www.irs.gov)
[edit] Federal income tax implications
For federal income tax purposes in the United States, there are several kinds of trusts: grantor trusts whose tax consequences flow directly to the settlor's Form 1040 (U.S. Individual Income Tax Return) and state return, simple trusts in which all the income created must be distributed to one of more beneficiaries and is therefore taxed to the non-settlor beneficiary (e.g. the widow of a trust created by the late husband), whether or not the income is actually distributed (which can occur), and complex trusts, which are, in general, all trusts that aren't grantor trusts or simple trusts. Some trusts may alternate between simple and complex under certain conditions. Many but not all trust organizations do their own tax work. This can be highly specialized work.
All simple and complex trusts are irrevocable and in both cases any capital gains realized in the portfolios are taxed to the trust corpus or principal.
